Rutgers Intro to Supply Chain Management Exam 2

Purchasing (Action)

Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money, or its equivalent.

Purchasing (Function)

key business function for acquiring materials, services, & equipment

Contracting

term often used for the acquisition of services

Supply Management

a newer term that encompasses all acquisition activities beyond the simple purchase transaction. "Identification, acquisition, access, positioning, and management of resources an organization needs or potentially needs in the attainment of its strategic objectives."

Merchants

Wholesalers and retailers who purchase for resale

Industrial Buyers

Purchase raw materials for conversion, services, capital equipment, & MRO supplies

Purchase Requisition

Document that defines the need for goods and/or services. An internal document. Does not constitute a contractual relationship with any external party

Purchase Order

The Buyer's offer to the supplier to acquire goods or services. Becomes a legally binding contract only when accepted by the supplier

The goals of Industrial Purchasing

1. Ensure Uninterrupted flows of materials and services at the lowest total cost
2. Improve quality of the finished goods produced
3. Optimize cusotmer satisfaction

Purchasing contributes to the goals of industrial purchasing by:

1. Actively seeking better materials and more reliable suppliers
2. work with the expertise of strategic suppliers to improve quality and materials
3. involving suppliers and purcahsing personnel in new product design and development efforts

Profit-Leveraging effect

a decrease in purchasing expenditures directly increases profits before taxes( assuming no decrease in quality or purchasing total cost.

Bottom line impact dollar for dollar

Return of Assets effect

A high ROA indicates managerial prowess in generation profits with lower spending

Inventory turnover effect

increased inventory turnovers indicate optimal utilization of space and inventory levels. Increased sales, avoidance of inventory obsolesce

inventory is an asset but it is money tied up, low liquditiy

Manual Purchasing process

1. purchase requisition
2. Request for quotation/proposal
3. purcahse order

In the manual purchasing process, what does purchase requisition mean

stating product, quantity and delivery date. May come from the MRP system

In the manual purchasing process, what is RFQ/RFP

RFQ is for repeat orders, while RFP is for new items for a specfic supplier

In the manual purchasing process, Purchase Order is

this is the buyer's offer to a supplier. It becomes a binding contract when accepted by the supplier

What are the steps in the e-procurement process

1. requester submits a material/purchase requisition
2. material purchase requisition goes to the buyer
3. buyer assigns qualified suppliers to bid
4. buyer revises closed bids and selects supplier

Advantages of E- Procurement

time savings, cost savings, accuracy, mobility, management, traceability

Outsourcing

buying materials and components from suppliers instead of making them in-house

Backward Vertical integration

refers to acquiring sources of supply. when a firm buys a company who previously supplied raw materials to the firm. It is a type of vertical integration, but specifically refers to the merging with firms who used to supply the firm.

Forward vertical integration

Refers to acquiring customer's operations. business activities are expanded to include control of the direct distribution or supply of a company's products

Make versus buy is a strategic decision. Why make and why buy

Make: Protect proprietary tech, having no competent supplier, better quality control, use existing idle capacity, control lead time, transportation, and warehousing cost, overall lower cost.

Buy: Cost advantage, suppliers may have economies of scale, insufficient capacity, lack of expertise, quality, specialization means more tech and better workforce

Supply Base

This is the list of your suppliers. Firms like to consolidate their suppliers into a smaller amount that is more stable and strategic, as well as more expertise, more product development, and product analysis, and capacity to meet unexpected demand

Single source versus multiple source

Single: better relationship, less quality variability, lower cost, proprietary product, and process

Multi: need more capacity, spread risk of supply chain, create competition, more sources of info

What are the 3 types of purcahsing

centralized Purchasing: purchasing departments located at the firm's corporate office makes all the purchasing decisions

decentralized purchasing: individuals, local purchasing departments, perhaps at the plant levels making their own purchasing decisions

hybrid: Central/Decentral - large organization with centralized control. large purchasing is central, smallerspecific decentral

decentral/central - large multinational org. corporate specific, while local does large purchasing

Global Sourcing

requires more skills and knowledge to deal with socioeconomic and political climate.

Import broker

sales agent who preforms a service for a fee

import merchant

buys and takes title to the goods

trading company

imports and carries a wide variety of goods

tarrifs

duties and taxes to protect a host country

non-tariff barriers

quotas, embargoes, etc

countertrade

raw materials traded for goods and services

Public Procurement

public purchasing for government and non profit sector

competitive bidding

the contract is awarded by to the lowest priced responsive and responsible bidder. Sealed bids are used to satisfy the Invitation for Bid and are opened in public display

Bid or surety bonds

placed to ensure that the successful bidder will fulfill the contract

Performance bonds

to ensure that work will be on time and meet specifications

Payment bonds

protection against 3rd party liens not fulfilled by the bidder

Sourcing

all of the firm's activities used to manage external resources

Strategic Sourcing

managing the firmss external resources specifically to support long-term goals.

drivers include: reducing costs and delivery cycle times, improve quality and long-term financial performance. optimize number of global suppliers, increase customer focus, reduce high cost of materials

Functional Products

MRO items and other commonly low profit margin items with relatively stable demands and high levels of competition, office supplies, food

Innovative products

short product life cycles, volatile demand, high profit margins, tech products

Framework of sourcing strategy development

1. Classify products int either innovative or functional products
2.develop strat source goals
3. evaluate supply chain capabilities and compare to required performance
4.set goals for improving capabilities, including past goals
5.implement the work plan, use formal management process,
6. monitor progress and adjust plans

Supply Base Rationalization

reduce supply base to the lowest number of suppliers possible without increasing risk. This means less purchasing costs, less supply management issues, closer and more frequent interaction between buyer and supplier, greater quality

Business Ethics, corporate social respinsibility, ethical sourcing

doing good things for positive social change to make you company look good

Green Purchasing

products that dont hurt envirnment

Sustainibility

ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, environmental, and social challenges

Insourcing versus cosourcing

In: or back sourcing is reverting to in house where production quality delivery and services do not meet needs

co: selective sourcing is sharing of process or function between internal staff and an external provider

Early Supplier Involvement

highly effective chain integration techniques. key suppliers become more involved in the internal operation of the firm mainly with product engineering

value engineering

activities that help the firm reduce cost improve quality and reduce new product development time

Vendor Managed Inventory

Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer

Co-managed inveotries

suppliers work from customer's sotrage areas or in the assembly line

electronic data interchange

Supplier can demand and determine accurate forcasts
also gives reorder point data to make timely restaokcs

Supplier colocation or JIT II

Supplier's employee is embedded in buyer's purchasing department to forecast demand, monitor inventory and place orders. Involves granting supplier access to proprietary or sensitive data

Strategic Alliance development

an extension of supplier development which refers to increasing a key or strategic supplier's capabilities.

Collaborative versus distributive negotiations

collab: both sides work together for better outcomes

distri: self interested one sided negotiations

Reverse Auctions

pre-qualified suppliers enter site and at a pre dsignated time try to outbid compeitiors.

Benchmarking

Measuring what other businesses do best and mathcing their performance is as effective approach to improving your supply chain

Third party logistics or 3PL

A growing industry that involves managing a firm's sourcing or materials and/or product distribution responsibilities
3PL providers charge a fee for services. Typically generates an estimated savings of 10 to 20% of total logistics costs
Benefits include improved service, quality, and profits for their clients

VMI is a type of 3PL
Lead logistics provider is a 4PL

Keys to strong supplier partnerships

Building trust
shared vision and objectives
Personal and individual relationships
COmmitment and top management support
Change management- being able to deal with change
information sharing and strong lines of communication
capabilities - good tech and capabilities to meet cost quality and requirements in timely manner
COntinious improvement

Performance Metrics
Total Cost of Ownership

This is made up of all costs associatated with the acquisition, use, and maintenecne of a good or service

Supplier evaluation

a process to identify the best and most reliable suppliers.
This decision is made on facts. This combined with good feedback can help maintain good relationships. Suppliers should also be able to provide good feedback to the customer.

Post supplier evaluation buckets

Preferred - work with these suppliers in maintaining a compeititve position and on new product development

acceptable - require a plan from these suppliers outlining how they willachieve preferred status

Developmental - require corrective actions on how they will achieve acceptable level. look for alternative suppliers

The benefits of supplier certification

builds long term relationships
reduces time spent on incoming inspections
decreases the supplier base
recognizes excellence

ISO 9000
vs
ISO 14000

9000 - Developed by International Organization for Standardization (ISO) - series of management and quality standards in design, development, production, installation, and service.
Companies wanting to sell in the global market seek ISO 9000 certification.

14000 - A family of standards for environmental management.
The benefits include reduced energy consumption, environmental liability, waste and pollution, and improved community goodwill.

8 principles of ISO 9000 certification

customer focus
leadership
involvement of people
process approach
systems approach to management
continual imporvement
factual appraoch to decision making
mutually beneficial supplier relationship

Supplier recognition programs 3 attributes

COmpanies should recognize and celebrate the acheivements of their best suppliers

Award winners exemplemfies true partenrships continuous improvement orgnaization commitment and excellence

Award wnning suppliers serve as role models for other suppliers

SRM (Supply relationship management) 5 points

Refers to extended procurement processes such as sourcing analytics, sourcing execution, procurement execution, payment and settlement, supplier scorecarding and performance monitoring.

1.Automation handles routine transactions
2. Integration spans multiple departments, processes, and software application
3. Visibility of information and process flows
4 collaboration through info sharing
5. optimixation of porcesses

LEAN

This is an operating philosophy of waste reduction and value enhancement that was originally created as the Toyota Production System (TPS) by key Toyota executives

Six Sigma

This is an enterprise and supply chain wide philosophy that emphasizes a commitment toward excellence and encompasses suppliers, employees, and customers. Lean compliments Six sigma

LEAN history

starting in 1910 Ford's mass production line was the first breakthrough by using continuous assembly and flow systems

1940 two japanese men created TPS which incorporated ford's system into other techniques to make LEAN

LEAN coined in 1988

In 1990 supply chain combined 4 concepts QR, ECR, JIT, and Keiretsu relationships

QR - Quick Response
ECR - Efficient consumer response, speed and flexibility
JIT - Just in time, continuous reduction of waste
Kei - includes JIT and TQM efforts

Lean manufacturing has 3 parts

Lean Production, respect for people, total quality management

to incorporate LEAN elements, teams use...

Cross training, satisfying internal customer demand, quickly moving products in the the production system, communicating demand forecasts and production schedules up the supply chain, optimizing inventory levels, channel integration - extending allieances to supplier's suppliers and customer's customers

Elements of LEAN

Waste Reduction, SUpply chain relationships, Inventory setup time reduction, small batch scheduling, continuous improvement, workforce empowerment, Lean Layouts

The 8 wastes, DOWN TIME

Defects
Overproduction
Waiting
Non-utilized talent
Transportation
Inventory
Motion
Extra-Processing

The 5 S's of Lean

Organization( SOrt), Tidiness(Set), Purity(Shine), Cleanliness(Standardize), Discipline(Sustain)

Lean SUpply Relationships

Suppliers and customers reduce waste

Lean Layouts

More people and materials when and where needed

SIX SIGMA

tries to imporve the quality of processes outputs by identifying and removing causes of defects

Originated in motorola, coined in GE

2 aspects

The use of technical tools, People involvement

Six Sigma 5 step plan

Define problem, map out the current process, indetify and cause of the problem, implement and verify the solution, maintain the solution

Crossover of LEAN and SIx Sigma

Lean creates value therough efficient use of resouces, identifies root problem using quality control tools

A LEAN Six Sigma supply chain

Jointly Define value
Conduct Supply chian capability analysis
develop key financial and operational metrics
identify and implement system improvements using value stream mapping

Six Sigma training levels

yellow belt - basic understanding of 6 sigma and DMAIC tools in problem solving

Green belt - a trained team member allowed to work on small carefully defined 6 signma projects

black belt - full knowledge of 6 sigma with ability to coach teams

master black belt - a proven mastery of process variability reduction and waste and growth principles

Lean manufacturing

is a pull system where the customer order comes first, Supply chains ussualy push system as extra inventory exists to cover up stock issues. In pull system there is no extra inventory

Acceptance Sampling

when shipments are received from suppliers samples are taken to measure for quality control

Statistical process control

Natural Variation - expected and random
Assignable variation - have a specific cause

DMAIC

Define, measure, analyze, improve control